It is chaos that prevails in the global vegetable oils market after crude palm oil prices have plunged by a third in the last one week.
What is leading to the situation is talk of Indian importers renegotiating deals with sellers in Malaysia and Singapore.
According to agency reports, at least two lakh tonnes of crude palm oil were being renegotiated by Indian buyers but traders and industry officials here denied any such renegotiation.
“Maybe, the fact that there is no renegotiation could have lifted palm oil on Bursa Malaysia Derivatives exchange towards close,” said a broker from Mumbai.
Crude palm oil slumped to 2,330 Malaysia ringgit (MYR) in the morning before rising 4.5 per cent to 2,351 MYR ($769 or Rs 40,200) a tonne.
In the domestic market, palm oil was quoted by refiners at Rs 498 for 10 kg and at Rs 503 on the Bombay Commodity Exchange. This is against Rs 568 quoted 10 days ago.
“Prices have dropped sharply that traders are reluctant to buy now. However, they are ready to make forward purchases,” said a trading source in Chennai.
In Mumbai, things are the other way around. “Traders are ready to take ready delivery but are not prepared to make forward purchases,” said the broker. “It is a situation similar to the one we saw in 2008 when prices crashed and many traders burnt their fingers,” said Sushi Goenka, former chairman of the Solvent Extractors Association of India.
The situation then helped get rid of fly-by-night traders.
Palm oil prices looked bullish until two months ago what with Indian monsoon playing truant and the US soya being affected by drought. “Prices touched 3,650 MYR in April and it was expected to run up to 4,000 MYR. Things have not turned that way,” said the Chennai source.
Though prices pared losses on Wednesday, the short-term outlook is bleak for the vegetable oils market.
“Crude palm oil on the MCX is quoted at Rs 415.60 for 10 kg for delivery in December.
“RBD palmolein, on the other hand, is quoting over Rs 500. Usually, the difference between these two is Rs 50. This means, there is further scope for prices to drop,” said the Chennai source.
“The closure of Chinese markets for a national holiday this week does not also augur well,” the source said.
Making things look more bearish are factors such as palm oil stocks being reported at 2.3 million tonnes for September and speedy harvest of soyabean in the US.
On Wednesday, soyabean on the Chicago Board of Trade fell for the third straight session to $15.20-3/4 a bushel. This is nearly $3 below its record high of $17.94-3/4 recorded on September 4. “If at all any renegotiation is taking place, it could be by some Delhi traders who do trade on high seas. But they are few and far in between,” said a southern refiner.
The Mumbai broker said that buyers were taking delivery of palm oil despite facing loss.
According to sources, some of the traders could be taking a hit of Rs 1 lakh for each container load they would be taking delivery of.
In Chennai, a consignment of 6,000 tonnes of crude palm oil has landed with a third-party letter of intent.
With no takers, it has headed to a warehouse in the city, said a trade source. A trade analyst in Chennai said that crude palm oil could head towards 1,500 MYR given the current situation of production glut and slowdown in economy.